Papua New Guinea

Overview

Papua New Guinea is a significant producer of gold, copper, nickel, silver, cobalt, oil and gas. The country ranks in the top 20 world gold and copper producers, with Lihir, Ok Tedi and Porgera the largest industrial gold mines. Small-scale alluvial mining employs around 80,000 people. Crude oil production is modest by global standards and declining due to maturing oil fields. Oil is slowly being replaced by natural gas production. Liquefied natural gas (LNG) production started in 2014, as the PNG LNG project came on-line. Social conflicts have centered on the environmental impacts of mining, state participation in extractive industries and inter-ethnic tensions. Another major issue that the EITI in PNG seeks to address is the lack of clarity in the process of paying landowners their shares from extractive operations.

Perception of corruption and fiscal instability also beset the country. PNG continues to suffer from fiscal woes brought about by lower revenue receipts caused by the slump in oil prices. In 2016, the growth of PNG’s economy slowed to only 2% as the PNG LNG project reached capacity and oil production declined. However, the medium-term economic outlook for PNG remains positive, with foreign investments in the pipeline. The economy grew by 3% in 2017 and is expected to maintain in 2019, according to the Asian Development Bank.

The EITI is improving inter-ministerial policy coordination, serving as a platform for discussions between industry and government as well as building trust with civil society. It is also shedding light on revenue sharing mechanisms at the subnational level.

Tax and legal framework

The three main taxes and fees levied on companies operating in the extractive industries include mining and petroleum tax (corporate income tax), group taxes (taxes withheld on employee salaries) and royalties. The Internal Revenue Commission (IRC) is the main body responsible for collecting and managing taxes paid to the central government. The Mineral Resources Authority and the Department of Petroleum and Energy are the bodies responsible for collecting fees for mining and petroleum respectively. Provincial and local governments, as well as landowner groups, receive subnational payments. No contracts have been published to date because of provisions in existing laws that mandate contract confidentiality.

Mining licenses are awarded on a ‘first come first served’ basis by the Mineral Resources Authority while development projects are negotiated on a case-by-case basis without disclosure of the terms. Oil and gas licenses are also awarded on a ‘first come first served basis’, although the technical and financial criteria for awarding licenses are not publicly defined.

Tax code

Contracts

Beneficial ownership disclosure

Currently, Papua New Guinea does not have a publicly available register of company owners. The government also does not require extractive companies to disclose their beneficial owners. However, the terms ‘beneficial owner’ and ‘politically exposed person’ are defined in the 2015 Anti-Money Laundering Act of PNG.

A Scoping Study on Beneficial Ownership was also published in March 2017. The study provided 33 recommendations in 9 salient areas to address the key gaps/barriers that would affect full compliance with the EITI standard’s requirements on beneficial ownership. The areas of recommendation include:

Consideration of the links between Beneficial Ownership and National Reform priorities

Consideration of the Institutional Framework for Beneficial Ownership disclosure

Determine a definition of Beneficial Ownership in the PNG context

Reporting obligation for Politically Exposed Persons (PEPs)

Consideration of level of detail to be disclosed

Data collection procedures

Assuring the accuracy of the data

Data timeliness •

Data accessibility

PNG EITI published its Beneficial ownership roadmap on 30 December 2016. The roadmap contains a good overview of currently available information and laws on beneficial ownership in PNG, highlighting the need to include beneficial ownership disclosure in the government's national priorities. Among the identified objectives for beneficial ownership disclosure in PNG are mitigating the risks of financial misconduct and improving PNG's investment climate. PNG aims to explore the possibility of including beneficial ownership disclosures in existing license application processes with the Mineral Resource Authority (MRA) or the Department of Petroleum and Energy (DPE) or in company registration processes with the Investments Promotion Authority (IPA). The roadmap includes activities aimed at disclosing the real owners of landowner companies who represent certain geographic areas within an extractive project. It also includes plans to embed disclosure requirements in existing legislation.

The EITI process continues to be a platform for dialogue related to the extractive industries. It has also continued to be a valuable mechanism by which gaps in existing government systems are identified, and recommendations of stakeholders are elevated by policymakers to improve the governance of the sector in the country.

Lucas Alkan, Head of PNGEITI National Secretariat

Production

Papua New Guinea is a significant producer of gold, copper, nickel and gas. The country also produces crude oil, cobalt and silver.

The PNG LNG project started producing liquefied natural gas starting in April 2014. The project with an initial investment of USD 19 billion is expected to produce 6.9 million tonnes of LNG per year. Currently, there are five principal oil fields in the country.

Amidst this period of economic transition, our Government remains steadfast in supporting important initiatives such as the EITI to safeguard our revenues and strengthen the foundation for continued economic growth

Revenue collection

Figures sourced from the 2017 EITI Report indicate that the extractive sector contributed to 7% of government revenues in 2017, double the amount in the previous year (3.24% in 2016). Revenues were mainly collected through group tax, equity distributions, dividends and royalties. Royalties in oil and gas are paid to the Department of Petroleum and Energy, while those for mining are paid to a combination of subnational governments, landowner groups and the Mineral Resources Authority.

Clarifying the flow of revenues through central and subnational governments was one of the government’s priorities in implementing the EITI. Subnational governments are entitled to receive shares of at least four revenue streams, although they can also negotiate additional revenues on a case by case basis. Mining companies pay such levies directly to subnational governments, while oil and gas payments to subnational government are collected by the central government before being transferred onwards.

Revenue allocation

Subnational governments and landowner groups receive the 2% royalties for both mining and petroleum. Previous EITI Reports explained that only two extractive industry revenue streams are recorded in the budget (corporate income tax as well as dividends) while others (royalties, license fees, production levies, dividends from NPCP, sales of commodities and project equity) are recorded in various places such as trust accounts and annual financial reports of relevant entities.

Social and economic contribution

The extractive industries make a significant contribution to the economy of PNG, most notably to exports, but also to GDP, government revenue and employment. There are also other broader impacts such as stimulating infrastructure development.

In 2017, the extractives sector accounted for 86% of PNG’s total export value. It also comprised 29% of PNG’s GDP, contributing up to 64% of the country’s 4% GDP growth.

The 2017 EITI Report estimates that as at December 2017, more than 2,580 workers were engaged in production-related roles in the PNG LNG project, of which over 2,100, or 82%, were PNG citizens. Previously, the 2016 EITI report referred to a study published by Papua New Guinea Chamber of Mines and Petroleum in 2015, which put direct employment in th extractives at 14,000, and indirect employment at 45,800. These include the employment of locally-owned businesses. The PNG LNG project provided a significant number of jobs during the construction phase (peaking at 21,200 in 2012), but this number declined as the project moved into production.

Policy recommendations and reforms

The 2017 PNG EITI Report, published in December 2018 recommended measures to address challenges in the transparency of sub-national payments and beneficial ownership disclosure. Other recommendations focus on increasing data availability through PNG government web portals for licence allocation and production data, improving the comprehensiveness of revenue data and improving data quality.

PNG has adopted a systematic way of implementing recommendations through a directive issued by the National Executive Committee requiring relevant agencies to act on these recommendations.

Innovations

The EITI encourages multi-stakeholder groups to explore innovative approaches to make the EITI more relevant and useful.

The 2016 EITI Report provides an overview of the significant informal mining sector in PNG, particularly artisanal and small-scale mining.

Details of oil and gas licenses were disclosed through the EITI Report for the first time, supplying gaps in the petroleum license registry.

Information on the public listings of all extractive industry operators in PNG is provided in the first EITI Report.

The MSG commissioned a scoping study on the possibility of implementing the EITI Standard to subnational governments and landowner associations

Implementation

The latest PNG EITI work plan was published in August 2018. EITI implementation in the country aims to show the direct and indirect contribution of extractive industries to the PNG economy, improve public understanding in the management of extractive industries, strengthen revenue generation and collection system of government, and engage stakeholders to address challenges in the extractive industries. The first PNG EITI Report, covering 2013, was launched in March 2016. The latest EITI report covering 2017 was published in December 2018.

Governance

The government’s National Executive Council passed Decision 90/2013 in March 2013, expressing its unequivocal commitment to implement the EITI. An interim Multi-Stakeholder Group (MSG) was formed in 2012 and a permanent MSG was appointed in November 2013. Currently, the MSG is composed of 30 members, with 15 representatives from the government, eight from civil society, and seven industry representatives. Treasury Minister and Deputy Prime Minister Charles Abel currently leads EITI implementation in the country. Mr Manu Momo, Deputy Secretary for Treasury, serves as Chair of the MSG and the PNG-EITI National Coordinator is Mr Lucas Alkan.